Download Mock_Exam_2013_MS

The Global Economy: Mock Exam
Mark Scheme
1a (i)
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The price/value of one currency against another (1)
Fixed rate (max 1 mark)
Where the exchange rate is set by the government/central bank (1 )
Where the exchange rate is pegged to another currency (1)
Where the exchange rate is maintained by intervention in FOREX markets (1)
An exchange rate not determined by the market (1)
An exchange rate which is not allowed to fluctuate (1)
1a (ii)
The exchange rate which equalises the price of a basket of identical traded goods and services in two
different countries (2)
An attempt to measure the true value of a currency (1) in terms of the goods and services it will
buy/in terms of a basket of goods and services (1)
1b
Disadvantages include:
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Need to maintain high levels of foreign currency reserves
Loss of control over domestic monetary policy
Over or under-valuation
Speculative attacks on the currency
For how marks are awarded, see mark scheme for January 2013
1c
International financial flows & FDI may create jobs, reduce unemployment, etc. thus promoting
economic growth. This is through increased investment into the economy which raises the level of
both AD and AS.
Diagram may be used to aid analysis – short-run AD/AS
May fill savings gap (Harrod Domar) therefore promoting economic growth in the long-run. (Up to 6
marks for analysis)
Consequences depend on nature of FDI; reliance may be dangerous because (up to 4 marks for
evaluative commentary):
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Profits from FDI may be returned to source country rather than invested within Estonia
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May promote growth but not development (e.g. if capital intensive it will not create jobs,
may lead to resource depletion, etc.)
Impact may be short-lived – may be little change in economic structure if concentrated in
resource sector
There may be more important constraints on economic development such as lack of
infrastructure
Multiplier effect – size of multiplier is relevant here.
2a
A budget deficit is excess of government expenditure (1) over tax receipts / government income /
government revenue (1) in a given time period
National debt is the total / cumulative outstanding (1) money owed by the public sector /
government (1)
One mark for an explicit distinction between the two:
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Budget deficits add to the nation’s debt and represent the increase in national debt (1)
Budget deficits are usually smaller than national debt
National debt is the accumulation of all previous budget deficits
Budget deficit is annual. National debt is over a number of years.
2b
(2 x 3 marks) Reasons may include:
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Skills & education of the workforce (see Extract 3 – analyse factors given). Explanation of
how this leads to economic growth. Specialisation in technology – comparative advantage?
Stability of the kroon, bringing about price stability – the right environment for firms to
invest, to attract FDI, etc. Importance of confidence & expectations.
Economic reform has created a well functioning market economy – i.e. an economy that is
flexible and can adapt quickly to changing demand
Exports driving growth – key export partner is Russia, one of the BRIC countries. Remember
that AD = C + I + G + (X-M)
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2c
Level 1 (1 mark)
Sustainable economic development is development that meets the needs of the current generation
without compromising the ability of future generations to meet their own needs. Economic
development generally refers to the sustained, concerted actions of policymakers and communities
that promote the standard of living and economic health of a specific area.
Level 2 (2-3 marks)
Adjusted economic indicator is useful in assessing success in achieving sustainable development
because they measure things that raise the quality of life (e.g. value of domestic labour) and deduct
things that reduce the quality of life, such as environmental damage, defensive expenditures,
income inequality.
Level 3 (4-6 marks)
Adjusted indicators are useful because they are (more) comprehensive measures than, for example,
GDP (4 marks). This helps governments to determine the best policies to pursue to achieve
sustainability / allows economic, social & environmental outcomes of growth to be explicitly
measured (5 marks). For example, higher GDP which results in pollution does not raise economic
wellbeing even though it raises economic activity unless the government introduces a policy to
internalise the negative externality (6 marks).
Level 4 (7-10 marks)
Problems might include:
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Lack of agreement on the choice of adjustments made to GDP
No clear way of determining objectively the weightings to attach to each adjustment
Difficulties of placing monetary values on, for example, costs of environmental degradation
3
L1
1-2 marks
Knowledge & understanding of economic development
L2
3-4 marks
Total lack of economic analysis – some application of how growth may lead to or hamper
development
L3
5-10 marks
Analysis of how Estonia 21 may lead to development and exploration of the possible trade-off
between growth and development. Analysis of each strategy – how might each lead to growth?
L4 1
11-14 marks
Basic discussion as to how strategy may both limit & increase growth
L4 2
15-17 marks
For a developed discussion which recognises that conflict may occur in the short-run, but that in the
long-run any conflict may be reduced.
L4 3
18-20 marks
A clear judgement on whether this strategy will limit Estonia’s growth with consideration of the
wider global context. Developed commentary along the lines of ‘it depends …’